Germany is the Eurozone’s Most Unequal Country

An analysis of a recent ECB report debunks the notion that Germans are somehow 'poorer' than Spaniards or Greeks and also reveals, along the way:

A comparison of the median and mean wealth reveals something about
the distribution of wealth in each [Eurozone] country. If the largest difference is
between the mean and the median, the greater is the inequality in the
distribution of wealth. It now appears that the difference is highest in
Germany. We show this by presenting the ratios of the mean to the
median for the different countries in Figure 3. In Germany the mean
household wealth is almost four times larger than the median. In most
other countries this ratio is between 1.5 and 2. Thus household wealth
in Germany is concentrated in the richest households more so than in the
other Eurozone countries. Put differently, there is a lot of household
wealth in Germany but this is to be found mostly in the top of the
wealth distribution.

The inequality of the distribution of household wealth is made even
more vivid by comparing the wealth owned by the top 20% of the income
class to the wealth owned by the bottom 20% of the income class. This is
shown in Figure 4. We find that in Germany the top 20% of the income
class has 149 times more wealth than the bottom 20% of the income class.
Judged by this criterion, Germany has the most unequal distribution of
wealth in the Eurozone.

Wealth held by top 20%/bottom 20%:

h/t MTW.

2 thoughts on “Germany is the Eurozone’s Most Unequal Country

  1. These two economists’ discussion isn’t really to the point.

    At first, they emphasize that everything looks different is different for mean assets (as opposed to the median). While the resulting picture still is quite different from what people might have expected (e.g. Spain at ~ 1.5 times the German level), it’s the median that actually matters for questions of distribution of wealth. If you add one household with unnumerable assets to any country, that can’t really be considered a crucial change in the situation of the “average” household. Politicians and media have rightly focussed on medians.

    Moreover, the ECB has – also rightly – acknowledged probable sources of bias of the data:
    First, the year of the data collection differs, and in some countries (like Spain, Ireland) fall into the period of a not-yet-burst housing bubble. Moreover, the survey uses proprietors’ estimates for real estate values. Both aspects tend to inflate the median household wealth in such countries which makes the data hard to compare (congratulations to the designers of the survey). Note, however, that bias by estimation usually inflates differences between countries, but does not change the order.
    So we should not take the exact numbers as gospel. But this also implies that metrics of inequality inside the individual countries have even much less reliability than the blunt comparison of medians. You just can’t have it both ways – either you take all the numbers literally (as the two did), then the average German IS poorer than the average citizen of each other EU state. Or you relativize the exact numbers (as the ECB did), then you can’t realistically make any statements about inequality.

    Finally, the two economists try to include company and government assets to determine the “capacity” of countries “to make transfers”. I can’t tell at the moment how reliable their approach is (or whether there are hidden logical loops) – but this misses the point of the survey. While their metrics might help to understand the “capacity” of a country, the survey was supposed to compare _household_ wealth levels. And according to its results, the situation of the average German household is much humbler than that of its Spanish counterpart.

    I still can’t believe this survey is a truthful image of reality. The ECB has done a good job in highlighting what might be wrong about it; but I can’t find any helpful insights on that from de Grauwe & Ji.


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